Portfolio Summary of Week Two:

This Week’s Research and Personal Reflection:

Corn

According to the report of US government, the projected corn production in 2013 is 80 million bushels higher than the record (13.8 billion bushels). However, the sales of corn (including domestic consumption and exports) fell 10 percent in the fiscal year that ended on Aug. 31, 2013. This is the biggest fall since 1975. The increasing supply of US corn and the decreasing the demand of US corn may pressure the price of corn future to go down further, at least in the short run. From long run prospective, the increased stock capacity of corn may allow the farmers to sell their corn when price goes up. In addition, China, one of the largest agriculture commodity importers, consistently shows interest in importing huge amount of corn from the US. It seems that the downward pressure of corn future may be limit in the long run.

Wheat

In this week, the price of wheat future continually rose and climbed to a two-month high. I think that there may be two reasons that can explain it. Firstly, since the major areas of the wheat production have suffered flood, the price of wheat in China boost dramatically in this month (about 3.4%). The Chinese government may have strong incentive to import wheat to keep down the domestic price. Thus, the traders expect tremendous import demand from China. Another reason is that the wheat belt in Argentina has been hit by frost. It may damage the crops. If Argentina, the world’s third largest wheat exporting country, suffers yield loss, the export supply of wheat in the worldwide may decrease remarkably and the price of wheat may increase significantly.

Soybean

The harvest season of soybean is coming. Although it is hard to predict the accurate yield of soybean in the US, according to the USDA report, if there is no extreme weather condition, the projected yield of soybean is still high, compared to the history data. In addition, in this year, Brazil is going to overtake the US to be the top soybean producer.  It anticipates that the yield of soybean in the South American will be a record high in 2014. All these reasons may continue to pressure the price of soybean future downward.

What did I do this week:

Based on my research, I did

1. Continued to hold wheat future
2. Shorted the Soybean Nov13

The Lessons I leant from this week’s trading game:

No impulsive decisions. In the last week, I bought 13 units Corn Dec13 and lost money. Thus, I shorted 3 units of long-term Corn future in this week without doing any research and hoped to reduce the loss. I thought this might reduce risk. On Thursday, however, I found that I loss money on both short-term corn which I bought and long-term corn which I shorted (Sigh~).

Don’t be too greedy. According to my research of last week, I found that this is not a good time to buy corn. Thus, I watched the price change of corn regularly and wanted to sell it when my loss can be covered. However, when the price of corn went up, I did not sell it and wanted to gain more profit. The ending of my corn story is that I loss $1350 after the market closed on Friday.

Believe the research and ignore small fluctuations of the market. Here is the lesson that I learnt from my soybean trade. I shorted 5 units of Soybean Nov13 on Monday. On Wednesday, the price of soybean went up a little bit. I was afraid of losing money again, so I covered my soybean at that day. Although I earned $275 from this trade, the price trend of soybean future is still going down in the following days.

Highlight Event of this Week:

US Stock falls as the Federal Government Faces Possible Shut Down

U.S. stocks fell this week. This is the first weekly drop of Standard & Poor’s 500 Index since August. No evidence in the economic data shows the US will face a recession, the budget impasse, however, might cause a government shutdown and drive the economy into recession. The market worries about the risk that hurts economic growth in the US.

PS: I am not sure how this event will influence the commodity market. From point of view of economics, however, stock market and commodity market are both financial markets. Intuitively, if the investors lose confidence in the stock market constantly, they will look for investment opportunity in the commodity market.

The Calendar of Next Week (from USDA):

Good Luck for the next week trading!

What did I do in this week:

Corn

I started my future trade on Wednesday. From the Maize Dec13 chart I found that the price of Maize Dec13 at that time was near the lowest point of the price range. Therefore, I bought 13 units of Maize Dec13 in total on Wednesday and Thursday as my first try. I thought that I would not lose lots of money even if it would not perform very well. Luckily, I earned about $800 after the US Market closed on Thursday.

The commodity market is not a casino, so I did some research on Friday. According to USDA’s report “World Agricultural Supply and Demand Estimates” in September, the yield and quality of corn in this year will be higher than expected. As a result, the price trend of corn has been going down in the past few weeks. I hope that the price of corn future may rebound after it continuously declined in September. Then I can sell my corn future and short it.

Wheat

Here comes my tragedy. I read some news from Chinese website on Thursday evening. I found that the central and eastern regions of China have suffered serious drought and persistent high temperature. This has caused crop failure on around 900,000 hectares of farmland. These regions are the major areas of rice production in China. China may have the worst harvest of rice in the decade. Thus, more wheat will be needed as the substitution of rice. However, the major areas of the wheat production in China, the northeast of China, have been hit by flood. More than 787,000 hectares of farmland were damaged in these regions. The yield of wheat in China has decreased severely. All these reasons explain my expectation that the import of wheat in China will increase dramatically.

Therefore, I decided to buy 10 units Wheat Dec13 on Friday. However, when I did this, I made two stupid mistakes: first, I chose a wrong order type. I should choose limit for my order, but I chose market instead. Because I placed the order before I went to sleep, my bid price was the open market price of wheat future on Friday, which was the highest price of that day. (Feeling so sad…..) My second mistake is even more stupid. On Friday morning, I surprisingly found that the wheat future I bought is not the Wheat Dec13, but the Dec14. I accidentally chose the wrong year.

I also tried to short 3 units of Wheat Dec13 on Friday and covered it at the end of the day. Fortunately, I earned about $200 on this.

Soybean

I did not buy soybean future this week, because it seems that the price of soybean is too high and it may fall a little bit in the coming days. Also, according to USDA’s “World Agricultural Supply and Demand Estimates”, soybean production in the US is projected at 3.149 billion bushels, down 106 million due to lower yield prospects. However, according to the forecast, the increasing production of soybean in Brazil and Paraguay will offset the decreasing production of Canada, the US, and China. I think that the short run trend of soybean future might be ambiguous.

Portfolio Summary of Week One:

The Lessons I leant from this week’s trading game:

First, doing research is the soul of the future trading. Secondly, I should check my orders more carefully before I confirm them. (I lost $6,250, which seems to be the tuition that I paid for my mistakes. Fortunately, it is not real money.)

Highlight Events of this Week:

The US Federal Reserve’s Press Conference

In the Wednesday afternoon, the Fed announced that they had decided to maintain bond-buying stimulus for the purpose of supporting the U.S. economy. After this announcement, the gold price spiked over 4% to $1,364.60 an ounce and the U.S. dollar fell to a 7-month low against major currencies. Dow, S&P 500 ended at record high: 15,676.94 and 1,725.52 respectively.

Middle East Tension Eases

Syria agrees to submit the details of its chemical weapon to the OPCW arms watchdog at The Hague. To some degree, the Middle East tension eases. This progress put pressure on crude oil price to go down. The price of October crude oil future fell about 1.6% on Friday and the weekly loss is more than 3%: the price settled down to $104.67. The investors fear that the supply of crude oil will increase from the Middle East.

P.S. Crude oil functions as the benchmark of the commodity market. The decreasing of its price is probably one of the reasons to explain the price fall of the agriculture products on Friday.

The Calendar of Next Week (Bloomberg)

By the way, the future trade is very addictive. I hope that I can do better and be more patient in the next week.